Macro

Cocoa Dips 8% as Ivory Coast, Ghana Hike Farmer Pay

Cocoa prices drop 8% in three days as Ivory Coast and Ghana boost farmer pay, potentially increasing supply.

By Athena Xu

4/4, 07:39 EDT
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Key Takeaway

  • Cocoa prices dropped around 8% over three days, influenced by Ivory Coast's 50% farm-gate price hike and potential similar action by Ghana.
  • The increase in farmer pay in top cocoa-producing nations is expected to boost supply, contributing to the recent price slump.
  • Analysts suggest the market was ripe for a correction after rapid gains, with cocoa trading anticipated between $9,000 and $10,000 a ton.

Cocoa Prices Retreat Amid Supply Optimism

Cocoa futures have experienced a notable decline, falling as much as 3.9% to $9,150 a ton in New York, marking an approximately 8% drop over three days. This downturn follows a period of significant price gains in the first quarter, with prices soaring from $8,000 a ton to $10,000 a ton in the latter half of March. Analysts from The Hightower Report attribute the recent price retreat to profit-taking and long liquidation, suggesting that the market was ripe for a correction after its rapid ascent. Citi Research analysts, including Aakash Doshi, hint that the previous price spike was driven more by momentum than by a fundamental shift, indicating a potential turning point in the cocoa bull cycle.

West Africa Responds to Market Dynamics

In response to the volatile market, Ivory Coast, the world's top cocoa producer, has increased farm-gate prices for mid-crop beans by 50%, with Ghana considering a similar move. This decision by Ivory Coast to offer 1,500 CFA francs ($2.46) per kilogram represents a significant increase from the main-crop season rates and is aimed at encouraging growers to deliver more beans and invest in their farms. The move is seen as a step towards addressing the global cocoa shortage, although analysts like Steve Wateridge from Tropical Research Services view it as insufficient to fully counter the legacy of low farmer remuneration in West Africa.

Ghana Contemplates Major Price Hike

Ghana, the world's second-largest cocoa producer, is in discussions to potentially double the farmgate price for cocoa beans. This unprecedented consideration aims to curb smuggling and compensate for the dwindling share of the world market price received by Ghanaian farmers, which has fallen from 44% to 16% in seven months. The Ghana Cocoa Board's deliberation on increasing the producer price reflects the acute challenges posed by smuggling, adverse weather, disease, and fertilizer shortages, which have collectively jeopardized the nation's cocoa output.

Street Views

  • Analysts at The Hightower Report (Neutral on cocoa):

    "Following very large price gains during the first quarter, the cocoa market was vulnerable to a wave of profit-taking and additional long liquidation that sent prices far below their recent highs."

  • Aakash Doshi, Citi Research (Cautiously Optimistic on cocoa):

    "The rapid pace of price gains in the second half of March — from $8,000 a ton to $10,000 a ton — suggests that momentum rather than a fresh fundamental shift in the narrative was probably behind the latest price spike... The next two months could represent a turning point in the cocoa bull cycle."